Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- APi Group Corp (APG, Financial) achieved record second quarter adjusted EBITDA and free cash flow, demonstrating strong financial performance.
- The company reported a 340 basis point increase in adjusted gross margin and a 190 basis point increase in adjusted EBITDA margin.
- APi Group Corp (APG) successfully closed six bolt-on acquisitions with an average EBITDA multiple of approximately five times, enhancing its growth strategy.
- The company remains confident in achieving its long-term target of 13% adjusted EBITDA margin by 2025.
- APi Group Corp (APG) has a robust M&A pipeline and continues to focus on identifying attractive opportunities, particularly in the elevator and escalator service market.
Negative Points
- Net revenues declined by approximately 2% in the quarter compared to 7% plus growth in the prior year period.
- The company experienced project delays due to federal funding, permitting, and customer delays, impacting revenue.
- Specialty Services segment reported an 18.4% decrease in revenues, driven by disciplined project selection and customer delays.
- Service revenues in the Specialty Services segment were down 10% due to an exited customer relationship.
- APi Group Corp (APG) expects full-year revenue to be closer to the low end of its guidance due to project delays.
Q & A Highlights
Q: You discussed project delays impacting the top line for the quarter. Could you give more color on whether these projects are just delays or cancellations? In addition, could you discuss what you're seeing in the back half of the year?
A: The delays were a mix of funding, permitting, and scope changes, but none of these projects are cancellations. We feel like we're about 90 days behind where we expected to be. Our backlog is growing and healthier, giving us confidence in the direction we are heading as a business. (Russell Becker, CEO)
Q: Could you give us an update on your uses of cash as we focus on the back half of the year?
A: Delevering is still a priority, and we plan to continue investing in our M&A pipeline. We have closed six bolt-on acquisitions in the first half of the year and plan to continue this strategy in the back half of the year. (Kevin Krumm, CFO)
Q: Can you talk about the overall macro environment that you see and update us specifically on what you're seeing in the data center market?
A: The data center market is very active, and we are focused on the fire life safety piece of that expansion. We are also seeing robust opportunities in the semiconductor space, advanced manufacturing, healthcare, aviation, and sports and entertainment. (Russell Becker, CEO)
Q: Can you explain what assumptions or macro drivers are driving the difference in Q4 EBITDA versus prior seasonality?
A: The primary driver is the expected acceleration of our project business in the back half of the year. We also expect margin expansion, which traditionally happens year in and year out. (Kevin Krumm, CFO)
Q: How should we think about margin targets by segment as you plan to raise them in early 2025?
A: We expect every piece of our business to continue to improve and expand margins. We will clearly lay out our new targets early next year. (Russell Becker, CEO)
Q: Can you give us some color on what you're seeing in pricing and how it factors into your second half outlook?
A: We have continued our pricing focus, especially on the service side of our business. Our customers continue to appreciate the value we bring, and we expect this to continue through the back half of the year. (Kevin Krumm, CFO)
Q: Was there any specific end market or commonality between the project delays, and what is the risk of further push-outs?
A: The delays were across various aspects, including permitting, funding, and customer changes. We are focused on growing our services business to mitigate the impact of project delays. (Russell Becker, CEO)
Q: Can you talk about your desired source of funding for M&A deals going forward and your appetite for larger deals?
A: We plan to fund bolt-on M&A through free cash flow growth. We are focused on integrating the elevated acquisition and making it a positive journey for their team. Larger deals would need to fit our profile and be accretive. (Russell Becker, CEO; Kevin Krumm, CFO)
Q: Can you talk about the service versus project breakdown within the safety segment and the expected growth rates?
A: Our service business in the safety segment continues to perform at mid-single digits, and we expect this to improve in the back half of the year. The project side is expected to move from slightly down to low single-digit growth. (Kevin Krumm, CFO)
Q: How do you think about balancing the reacceleration of the project business with the margin benefit from mix?
A: We expect the mix to still be a benefit in Q3 and Q4. Even with the acceleration of our project business, we do not see the mix flipping on us from a projects versus service standpoint. (Russell Becker, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
